Sustainable Investing
Posted on Posted in Financial Planning

Learn What to Look For in a Financial Advisor

When seeking out a financial advisor[1], it can be helpful to have a basic understanding of what you need assistance with and what exactly the advisor can and cannot do.

The financial services industry has not made it very easy for the client, in that, there are a variety of titles, licenses and experiences that an individual may or may not have. Almost anyone can call himself or herself a financial advisor, financial consultant, financial planner, investment representative, wealth manager etc., but what does this really mean? In fact, there are no educational requirements to become a financial advisor but most firms do prefer that the advisor have at least a bachelor’s degree. Depending on the types of products and services the advisor offers and the manner by which they are compensated, there are also varying license requirements and roles assumed.

For example, in order for an advisor to sell securities (stocks, mutual funds, etc.), they must obtain a Series 7 (Registered Representative/Stockbroker) license. If they are only offering mutual funds, then they must have a Series 6 license. In order to provide insurance type products, they must be insurance licensed.

When providing financial advice or financial planning services, advisors must hold a Series 65 license. All advisors are required to complete continuing education requirements as well.

Many advisors also work towards a variety of industry designations, especially when they focus on certain areas within their practice. For example, I hold the Accredited Asset Management Specialist – AAMS®, Chartered Retirement Planning Counselor – CRPC®, and Certified Divorce Financial Analyst – CDFA™ designations and also have a Masters degree in Financial Planning. I am also a candidate for the Accredited Investment Fiduciary – AIF® designation. There are continuing education requirements for any designations held.

Because financial advisors come with various titles, come from a variety of backgrounds, educational experiences and licensing requirements, it can sometimes be difficult to choose one.

This is why it is important to understand the role that an advisor plays when working with you. What hat do they wear? In other words, are they working with you under a suitability requirement or are they acting as a fiduciary? And what do those roles mean?

To best meet your needs, ask yourself a few questions:

Do you want or need an advisor to manage your investment portfolio?

  • Do you prefer to make the investment decisions yourself and are just looking for the advisor to execute on your orders?
  • Do you want to engage an advisor in a fiduciary capacity with a duty to provide you ongoing investment services?
  • Do you desire, instead, only occasional advice or recommendations on particular investments from an advisor?
  • Do you wish to work with an advisor where the fee is consistent, and not tied to the number or type of transactions in the account?
  • Do you prefer to pay your advisor for each transaction that you place?

Generally, when an advisor is a “broker” they are required to meet a “suitability” standard. This means that when the advisor (broker) is buying and selling investments and providing incidental advice, they are only required to provide what is considered suitable recommendations, not necessarily what is in your best interest. When an advisor is held to the fiduciary standard, they are required to always do what is in the best interest of their client. These differing standards are also tied to the types of licensing the advisor may have or are required to hold when acting in each capacity. Also, some advisors may be dually qualified, meaning they hold broker and advisor licensing. They assist their clients with buying and selling of securities and provide ongoing financial planning and investment advice.

Understanding roles of an advisor can help you understand the types of accounts you own. Generally, when you have a brokerage account, there are commissions charged when trades are transacted within the account, which is how the advisor is compensated. A brokerage account is usually classified as a commission-based account. If you have an advisory account, you may pay a percentage fee based on the value of the assets in the account, however you would not be charged a commission on the trades placed within the account. This would be called a fee-based account. Advisors under the fiduciary standard can also charge a flat or hourly fee for planning and can also exercise discretion.

There isn’t anything inherently wrong with either structure; however, understanding the differences and understanding fees and duties owed can help clarify how you should view advisors.

Lastly, when choosing an advisor, be sure to ask questions and seek explanations that you understand.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

[1] For purposes of this article, financial advisor will be the preferred term used.